February 17, 2010

Will we hate Duane Reade any less now that it's Walgreens?

Today's news that Walgreens is buying Duane Reade for a billion dollars is sure to bring a lot of derision from a city of people forced to shop at Duane Reade, often on a daily basis, in spite of high prices, poor service, ridiculously convoluted store layouts, and their recent totally inflammatory decision to stop stocking Seventh Generation toilet paper.

But if Walgreens is going to be successful in its attempt to "harmonize" the cultures of the two chains, it had better learn about the realities of urban retail real estate, an area in which Duane Reade is the uncontested champion. Duane Reade is currently owned by a private equity firm who made the new logo and presumably launched the lucrative Delish™ snack line in an effort to spruce up the stores, but I believe that the most important strength Duane Reade has is its ability to locate its stores with such expert precision that most New Yorkers are actually physically unable to not shop there.

A few years ago, New York magazine had a surprisingly long and well-researched feature about Duane Reade's ability to turn the ugliest, worst-designed hole in the wall into successful retail space. It all comes down to one thing: foot traffic. Figure out where people walk on their routes to and from work, then put your store smack in the middle of it.

Then you can charge whatever you want, staff no more than two registers regardless of how busy it is, and place the saline solution in the back corner of the basement level, and people will still shop there. Let CVS have the nice expensive corner location with no aggravating second floor where the Cold-Eeze™ is. If it's on the wrong side of the block, you won't shop there, because New Yorkers will do anything to avoid crossing the street.

One other area of concern: while 85% of Duane Reade locations sell beer, exactly zero Walgreens stores do. Clearly another core competency that Walgreens might learn from its new acquisition.